Before WWII, one of the basic ingredients for an active Main Street was ground-floor retail in residential projects. Federal regulations changed after the war, and for decades the Federal Housing Authority (FHA) restricted the commercial component of a residential project to no more than 25 percent of the gross floor area/net rentable space or gross income from a project.
“Developers of apartments or condominiums were discouraged from medium-rise mixed-use projects because they weren’t eligible for financing, housing preservation credits, and low-income tax credits,” says John Norquist, president and CEO of the Congress for New Urbanism (CNU) and ECOHOME’s 2013 Vision 2020 chair for Sustainable Communities. “Research shows that there’s now a preference for urban walkable communities, but the regulations push retail into shopping malls and strip centers or force developers to build higher to attain the percentage–and many medium and smaller communities don’t want that.”
CNU and its partners created the “Live/Work/Walk: Removing Obstacles to Investment” initiative to inspire policy reform. In September 2013, the effort received a significant boost when FHA raised the restriction to 35 percent and up to 50 percent on a sliding scale of factors. CNU is hoping that Fannie Mae, Freddie Mac, and HUD's 221d4 and 220 programs will follow suit this spring with an increase in percentages.
“We aren’t advocating that there would be retail on every street—it should be a zoning issue for local governments,” says Norquist. “Raising the cap opens the doors to more efficient, environmentally friendly, walkable centers and expands housing options for lower-income people. It delivers both environmental and public benefits.”
Developer Steve Maun, principal at New York’s Leyland Alliance, has worked with CNU and National Town Builders Association (NTBA) to further the mission of new urbanism and transit-oriented building. “When developers look at a community with beautiful, older, two-, three-, and four-story buildings, approval for financing is critical to renovate and restore those structures,” says Maun. “Developers shy away from these projects because a commercial first floor is too large of the project’s percentage to obtain financing.”
Maun would also like to see mid-sized, mixed-use properties earn designation as a specific asset class, because insurance companies and financial institutions are much more comfortable investing in properties that fall into a specific asset class (such as shopping centers or student housing).
“People interested in economic development are thinking about all the different approaches now,” says Maun. “We need the tools that allow mid-sized mixed-use projects to become vibrant magnets that attract other development and revitalize neighborhoods.”